Concerns have been raised about the lack of public disclosure from insurers regarding funded reinsurance (FundedRe) following the publication of new policy expectations from the Prudential Regulatory Authority (PRA).

Aon stated that while the PRA’s new requirements were a positive step, it “continued to be concerned” about the lack of public disclosure from insurers.

The consultancy added that it hoped the continued attention to this area would lead to more public disclosure to provide greater reassurance to customers.

Despite these concerns, Aon said that it was clear that insurers already spend considerable time on risk controls on FundedRe, and that the PRA requirements should drive more consistency in their stringency.

“A number of larger UK bulk annuity providers have also been using FundedRe internally for some time – reinsuring risks to subsidiaries in other territories within their own group, partly to manage risk diversification across the group,” Aon noted.

“Used in moderation with appropriate risk mitigations in place, we believe FundedRe can help support bulk annuity capacity in the UK during a period of significant demand from defined benefit pension schemes.”

The consultancy expected that this was an area that would continue to evolve, with the PRA continuing to keep an eye on developments and as the market continues to innovate to support demand for bulk annuity transactions.

“Early indications from insurers are that this latest set of developments is unlikely to have a material impact on pricing,” Aon stated.

“However, we do expect that trustees and sponsors will want to carefully consider appropriate insurer due diligence before and following their transaction – including the role of FundedRe as a component of overall risk exposure.”

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